Spain to Challenge German Doctrine on ECB Funding Governments

By Esteban Duarte -
Jul 17, 2013

Spain will this week revive
peripheral euro nations’ aspiration to make the European Central
Bank a permanent backstop for government finances, a proposal
repeatedly rebuffed by the German officials who control the
currency union’s purse strings.

“The ECB should assume the role of lender of last resort,
like the Bank of England or the U.S. Federal Reserve,”
according to a working paper the Spanish Foreign Ministry will
present at a July 19-20 meeting in Palma de Mallorca. “It can
contribute to the success of the euro-zone economic policy.”

Spanish Foreign Affairs Jose-Manuel Garcia-Margallo will
spring the plan to open up access to the central bank’s 2.4
trillion-euro ($3.1 trillion) balance sheet at a gathering of
colleagues from some 18 European countries including Germany’s
Guido Westerwelle. The European Union’s founding treaty forbids
the ECB from financing governments, a stipulation to which
Germany demands strict adherence.

The Bundesbank said in May 2012 that the ECB shouldn’t be
lender of last resort and that the unlimited purchasing of
government bonds would breach the scope its founding treaty. It
was the sole opponent of ECB Chairman Mario Draghi’s bond-buying
program.

Garcia-Margallo’s pitch fleshes out a proposal his Prime
Minister Mariano Rajoy floated in April to give the ECB the same
powers as the world’s other main central banks. Germany’s
Bundesbank is the ECB’s largest equity holder with a 18.8
percent stake, while Bank of Spain is the fifth with a 8.3
percent.

Next Steps

Giving the ECB a broader role is part of a list of
proposals Spain will present outlining the next steps on the
European Union political agenda, according to a preliminary
version of the document seen by Bloomberg News.

Spain is proposing to turn the European Stability Mechanism
into a European Monetary Fund, with power to resolve problems in
the monetary union, the document said. Garcia-Margallo will also
call for single-currency members to be able issue common debt,
placing German taxpayers on the hook for his country’s
borrowing.